On GameDaily is word that Silicon Knights is suing Epic Games over “inadequacies of the Unreal Engine 3 code”. Apparently, this comes from a E3 2006 demo showing of Too Human, which had “technical problems and generally unpolished appearance,” with Silicon Knights claiming that Epic withheld a “very usable version” of their engine for its own purposes, delivering a fully functional version of the software in November last year, roughly eight months after the deadline. Here is a message from Epic’s Mark Rein on the matter:

This morning we were served with a lawsuit by Silicon Knights. We believe the claims against us are unfounded and without merit and we intend to fully defend against them. We’d love to tell you more about it but unfortunately our lawyers want us to save our comments for the courthouse so we’re going to do our best to comply with their wishes. In that vein we’d appreciate if our friends in the industry and media would refrain from asking us about the suit because we’re only going to say ‘no comment.’ We just wanted to share the news directly before the rumor mill starts churning.

Silicon Knights is looking to negate the original licensing agreement, the unrestricted legal right to alter the engine, and, most significantly, forfeiture of all profits gained through sales of Gears of War to the studio in the form of awarded damages.

We stand behind everything in our complaint and believe it is highly unfortunate that Epic forced us into this situation. We would rather spend our time focusing on making great games, but as stated in our complaint, Epic simply refuses to acknowledge the inadequacies of the Unreal Engine 3 code it provides to its licensees, and refuses to accept the fact that its code has caused serious damage not only to Silicon Knights, but a number of other developers in the industry. We look forward to successful resolution of our claims in this court proceeding.

Microsoft has denied any involvement in the legal battle, as they are affected neither by Epic’s engine nor by Silicon Knight’s work.